Daily Market Brief 9 May 2018

Pound’s Slide Slows

May 9th: Highlights

  • Weak data keeps pressure on for further fall
  • Trump withdraws U.S. from Iran deal
  • Euro breaks major support

Multiple drivers keep Sterling under pressure

The multitude of headwinds being faced by the pound currently means that if pressure subsides from one direction there is sure to be another piece of bad news to maintain the downward momentum.

As the market has now accepted that the Bank of England won’t be raising short term interest rates tomorrow, traders are looking elsewhere for a reason to either maintain or add to short positions.

Yesterday that encouragement came in the shape of weak economic data. Last month’s housing data was arguably the catalyst that started the reversal currently being experienced since house prices rose very slightly but activity, the number of properties actually sold, plummeted continuing a yearlong trend that had been largely ignored. Prices fell by 3.1% in April reversing all the gains made in March leading to a year on year rise of just 2.2% well below the markets median expectation of 3.3%.

Sterling fell initially following the data but recovered versus the dollar which had its own significant drivers (see below) It had one of its wider recent ranges making a high of 1.3593 and a low of 1.3484, closing roughly in the middle at 1.3547.

Brexit continues to be a significant influence and as splits in the Cabinet over the proposals for a customs partnership emerge they can only become deeper and more ingrained.

Considering your next transfer? Log in to compare live quotes today.

Trump continues to dominate world stage.

Before he became President, Donald Trump was one of the most dominant businessmen in the United States. His influence stretched to the odd property deal here and there globally, but he primarily concentrated on the domestic United States.

Since he became President however, he has been accused of abandoning domestic policy and the issues America clearly faces in favour of a foreign policy agenda which he sees as the path to “making America great again”. However, it is not clear that such a route complies with his America First battle cry.

Yesterday he made the long awaited but hardly unexpected announcement that the U.S. is to withdraw from the deal that had been made by all the members of the U.N. Security Council to withdraw sanctions on Iran in exchange for them scaling back considerably their nuclear programme. This is probably the most significant of the foreign policy actions taken in the past few months as the consequences could be far reaching.

Not only has Trump placed himself at odds with three of his closest allies; Germany, France and the UK he has also potentially brought further discord to the Middle East.

The dollar index was stronger on the day driven more by the fall of the euro through significant support than any significant market support for Trump’s actions. It reached a fresh recent high of 93.29 and has continued to move higher overnight as risk appetite has waned globally.

Euro falls through significant support

One of the features of the markets recent actions has been the ease with which what had been strong support and /or resistance levels have been broken. The single currency has now broken what were strong supports at 1.2380, 1.2220 and 1.2160 during its recent fall and yesterday it broke through arguably the most significant at 1.1880.

Over the past few years this level has proven to be support during falls and resistance during rallies rarely being broken at the first attempt. That changed yesterday as the single currency made a new low for the year of 1.1838 and has continued to exhibit weakness overnight.

Despite the significant headwinds being faced by the pound, the euro also lost ground reaching 1.1423.

Weak data was the initial catalyst for the fall but political issues which had lain dormant for a few months rose to the surface as the prospect of fresh elections in Italy as soon as July grew.

The Italian President called for an end to political bickering which was met by further disagreement as a call for a “neutral” government were rejected potentially plunging the country into further turmoil when what is needed is strong leadership to deal with a potential crisis in the banking sector.

Have a great day!

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”